I’ve recently published a blog called “Advice for Middle Britain” which argues for a more honest approach to the promotion of dependent advice. It sets out a trade-off between the purity of fee-based advice and what people can afford. Most people are getting advice dependent on advice fees being taken from a pension pot, it isn’t perfect, but for 90% + of us , who would prefer advice at a price we can afford, it will do.
As my friend John Mather tells me, there is nothing wrong with saving advisory fees by charging the advice to the savings product.
More on price/quality trade-offs
In this blog I want to focus on further trade-offs price/quality trade-offs. Three in particular
- Face to face or remote?
- Standard or bespoke?
- DIY or managed execution?
Face to face or remote?
I suspect that Britain’s lockdown will radically change our attitude to remote meetings. Most of us have done meetings on Zoom, Skype, Teams or Hang-outs. By the time we’ve come out of lockdown we’ll be quite good at them. There are online tutorials which even I can understand.
Most of the cost of face to face is logistical. The cost of getting to meetings, of meeting rooms, of staff to settle you in , teas and coffees and of writing up the meeting and filing – all make face to face meetings very expensive.
The alternative is for both sides to meet online and agree that the meeting be recorded. Simply attaching an MPEG file of the meeting to the client’s case history is a matter of a minutes time.
We should be plain – whether as advisers or customers, we only have a face to face meeting where absolutely necessary and the cost of that meeting must be laid out and compared with the cost of the remote alternative. I am done with pretending that face to face is cost-free and this goes for that initial meeting too.
Bespoke or off the peg?
The financial services industry likes terms like “triage”, “bucketing”: and “segmentation”, but its customers don’t. We don’t like “default solutions” either. Its not just because all the words are ugly and have negative connotations, it’s because it’s not explained to us why standard solutions offer better value for money for most people.
Most people don’t want to pay the extra £2000 per suit to get it made to measure. They won’t pay the £160 for a tailored shirt or the £600 for a fitted pair of shoes. Instead they will pay a tenth of the price for an off the peg product which is 90% as good.
We need to be clear to our customers that designing bespoke investment solutions with all the modelling that goes with them is simply beyond our means. Setting out the standard costs of the various services on a rate sheet is not just more transparent, it’s excellent marketing. It makes the business of paying for advice a standard experience too.
Self-service or managed execution?
Making a buying decision is one stage of the process and any rate card of services should itemise what goes into getting to a buying decision and why it costs what it does.
But implementing that decision, including setting up the payment system that ensures that the product/solution is maintained over time through regular reviews, needs to be explicitly stated.
If a client insists on a solution which cannot be funded from the pot, the cost of that insistence needs to be laid out. It means that all current and future fees need to be invoiced and paid for (with VAT) from a bank account.
Crystallising all costs in this way may be acceptable to some clients, but presenting the bill for advice in both ways, not only puts the customer in control, it generates trust.
Similarly, giving the customer a choice between a managed implementation and a self-service approach and laying out the costs and benefits of both puts the client in control and generates trust.
Keeping the cost down
Most advice can be delivered remotely, with standard solutions that can be self-executed. This is how advice can be delivered within a budget without cross-subsidies. No mates rates and certainly no hidden or deferred fees.
The cost must be the proper price for the job and build in all the costs the adviser incurs including insurance, regulatory fees, staff and premises and of course the systems and staff used to deliver clear recommendations and if necessary execute transactions.
Maybe the least understood cost, is the cost of dispute. Getting things out in the open through clear terms and conditions and published rate-sheets at each step of the advisory process, may seem unnecessarily commercial.
But here I think a clear distinction must be made between “advice” and “counselling”. Many financial advisers to offer counselling as part of their service and enjoy providing support to customers which allows customers to consider themselves “clients” or even “friends”. This is absolutely fine, where both sides are comfortable with this level of service. It is why people are prepared to pay huge amounts for an SJP adviser and why SJP advisers rate highly on trust-pilot.
But counselling cannot be part of the Middle Britain Advice Package. Professional advisors must be clear about what is on the clock and interact with customers in a consistent way. When I see or phone my GP, I no longer expect a chat.
Necessarily , advice has to be commoditised, packaged and delivered to price and time. Full disclosure of costs at each stage of the process is imperative in creating and maintaining trust. Using product dependent charging is essential to make advice effecient and setting the standard delivery options as
- Standard solution
- Self-service execution
…. means that advice can be affordable for most people when they need it most.
I would also argue that doing things in this explicit way, by explaining things in terms of trade-offs and by maximising efficiency, we can create a much more compelling product than the amateur shambles of the past.